8-K: Varex Imaging Closes $125 Million Senior Secured Notes Offering to Partially Repay Convertible Debt

Varex Imaging Corporation successfully completed a $125 million private offering of senior secured notes to partially repay convertible notes due in 2025.

Summary

• Varex Imaging Corporation has closed a private offering of $125 million in 7.875% senior secured notes due in 2027.
• The notes were sold at 101.5% of the principal amount, plus accrued interest from October 15, 2024.
• The company expects to receive approximately $124 million in net proceeds after fees and expenses.
• These net proceeds will be used to partially repay the $200 million convertible notes due on June 1, 2025, or to repurchase them before maturity.
• The funds are held in a restricted account and can only be used for the repayment or repurchase of the convertible notes.
• The new notes are part of the same series as the existing $300 million senior secured notes, of which $243 million is currently outstanding.
• Varex also intends to terminate a $20 million secured equipment credit facility.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company is addressing its debt obligations, it is doing so by taking on more debt at a relatively high interest rate. This is a necessary step but not a particularly strong positive.

Positives

• The successful offering provides funds to address the upcoming maturity of convertible notes.
• The company is proactively managing its debt obligations.
• The offering preserves availability under the revolving credit facility.
• The new notes are part of the same series as existing notes, simplifying debt management.

Negatives

• The company is taking on additional debt to repay existing debt.
• The interest rate on the new notes is 7.875%, which is relatively high.
• The company is only partially repaying the convertible notes, indicating a continued debt burden.

Risks

• The company's ability to repay or repurchase the convertible notes depends on the success of this offering.
• There are risks associated with the use of proceeds from the offering.
• The company's future financial performance could be impacted by its debt obligations.
• The company is subject to various risks and uncertainties that could affect its results.

Future Outlook

The company intends to use the net proceeds from the offering to partially repay or repurchase the convertible notes due in June 2025 and to terminate the equipment credit agreement. The company's future performance is subject to various risks and uncertainties.

Management Comments

• Sam Maheshwari, Chief Financial Officer of Varex Imaging Corporation, stated that the company is pleased to have successfully closed the offering of additional senior secured notes.
• Mr. Maheshwari added that the additional funds allow the company to address the partial repayment of convertible notes due in June 2025, while preserving availability under the revolving credit facility.

Industry Context

This announcement reflects a common strategy for companies to manage debt obligations by issuing new debt to refinance existing debt. The high interest rate on the new notes suggests that Varex may have limited options for financing, or that the market perceives a higher risk associated with the company's debt.

Comparison to Industry Standards

• Issuing senior secured notes to refinance convertible debt is a common practice in the capital markets, especially for companies with upcoming debt maturities.
• The 7.875% interest rate is relatively high, which could indicate a higher risk profile compared to other companies in the industry.
• Companies like GE Healthcare and Siemens Healthineers, which are major players in the medical imaging industry, typically have lower borrowing costs due to their stronger credit ratings.
• The use of a restricted account to hold the proceeds is a standard practice to ensure the funds are used for their intended purpose.

Stakeholder Impact

• Shareholders may experience a short-term positive reaction due to the company addressing its debt obligations.
• Creditors are impacted by the issuance of new debt and the partial repayment of existing debt.
• Employees are not directly impacted by this announcement.

Next Steps

• The company will use the net proceeds to partially repay or repurchase the convertible notes.
• The company will terminate the secured equipment credit facility.
• The company will make the first interest payment on the new notes on April 15, 2025.

Key Dates

Keywords

Senior Secured Notes, Convertible Notes, Debt Repayment, Private Offering, Varex Imaging, Capital Markets, Financing